Internet

Return to Article

Diller Asks Jeeves to Grow

Jonathan Berr

The rising tide of Internet advertising is lifting all boats, but catching a wave could still be tough for IAC/InterActiveCorp (IACI).

Barry Diller's Internet empire expects to increase the staff at its Ask Jeeves search engine by about 20%, Ask Jeeves head Steve Berkowitz says. The expansion comes as Jeeves, which employs 650 workers now, posts solid gains in traffic but remains overshadowed by its more famous and deeper-pocketed rivals. IAC shares are down 10% for the year.

The search company has a storied history, of sorts. Ask Jeeves shares quadrupled on their first day of trading in 1999, only to crash when the Internet bubble burst. Now the company, which became part of New York-based IAC in a $1.9 billion deal completed in July, is expanding both its operations center and its corporate headquarters staff.

With Internet advertising surging in popularity, Berkowitz is trying to carve out a niche for the 9-year-old site, with or without its butler mascot Jeeves. Among other improvements, Ask Jeeves wants to bolster its site by giving people suggestions on how to refine their queries.

"What we really want to do is grow share," says Berkowitz, who has headed Ask Jeeves since 2001, in an interview. "A lot of stuff is going to be happening" next year.

Indeed, a lot of stuff has happened already. Just the last year-plus has seen the rise of Google (GOOG) from a mere search engine to a many-tentacled media giant with aspirations ranging from books to music and just about everything in between. Last week the company reportedly beat out software titan Microsoft (MSFT) -- whose MSN network is heavily trafficked but has failed to win many fans -- in a competition to set a deeper partnership with Time Warner's (TWX) America Online.

The sprint to set up shop with AOL illustrates the increasing power of Internet advertising. AOL was long seen as merely a declining cash-cow dial-up business in a broadband world, but with the explosion of Net searches in recent years, the company's Web sites have become a crucial property. The bidding for a stake or ad partnership with AOL drew not only Google and Microsoft but also their chief rival on the Web, Yahoo! (YHOO), and fetched AOL an imputed value of $20 billion.

The big players' quest for scale puts also-rans like Ask Jeeves in an even tighter spot. Recent numbers show just how tough a crowd this is.

The volume of queries to Ask Jeeves rose 77% between June and October, a faster pace than its larger rivals, according to Nielsen//NetRatings. But Ask Jeeves still has just a fraction of those sites' reach. In October, Google did 2.4 billion searches, while Yahoo! had 1.1 billion, MSN 583 million and AOL 368 million. Ask Jeeves had 134 million, Nielsen says.

Regardless of the disparity in scale, Ask Jeeves is making progress. Some of its gain in traffic is likely the result of IAC's placement of Ask search boxes on its popular sites. More search boxes will be added over the next few months. In addition, IAC hopes to be able to use the site as a link between its businesses.

"Within the industry, there has been a lot of good, positive buzz," says Jennifer Laycock, editor of searchengineguide.com, in an interview.

Ask Jeeves' profile with investors also has been rising ever since IAC spun off its Expedia (EXPE) travel business in August, says Scott Kessler, an equity analyst with Standard & Poor's in New York. He rates IAC shares a buy and doesn't own them.

"One of the initial goals for IAC is retool the site, to make it more appealing to consumers," he says. "It's less cluttered and more targeted than it has been in the past."

Get Jim Cramer's picks for 2006.